Congressional and Senate leaders have been looking for ways to sure up the financial and banking industry in order to prevent a crash like the one that happened several years ago. Our economy has still not recovered from it and implementing change is one way politicians can attempt to keep Americans safe. The challenge with regulation is that it can have a dual effect. Too much regulation on the mortgage industry can make it harder for banks to lend and homeowners to get a mortgage loan. Striking this balance has been difficult and will continue to be.
What is the Qualified Mortgage Rule?
The Qualified Mortgage Rule is part of these proposed regulation changes. In 2011 it was proposed that banks would need to keep a 5% interest in the loans they issued unless they had over 20% equity and the borrowers had a debt to income (DTI) ratio of under 36%. This would encourage banks to lend to borrowers with good incomes, simply because they are more likely to have that level of a down payment and low DTI. For borrowers that are lower income, and many minority communities, this raised a red flag as it could decrease the number of home loans banks would be willing to issue. Banks typically sell their loans to an outside party such as Fannie Mae or Freddie Mac in order to have capital to lend again. This makes issuing mortgage loans outside of the mentioned exemption cost prohibitive to mortgage banks.
At the end of August regulators revised their proposal, after taking the concerns under advisement. They softened their definition of a Qualified Residential Mortgage by eliminating the down payment requirement and raising the DTI threshold to 43%. This is a major improvement and will significantly help low to medium income families in obtaining mortgage loans. This new proposal ensures that access to capital will remain intact for the average American family.
This is an example of why it is so important to stay on top of proposed regulatory changes and make your voice heard when something is being suggested that could negatively impact you. The Mortgage Bankers Association and homeowners advocacy groups were integral in getting these changes. You can also send letters and emails directly to your congressional and senate leaders advocating that they pass the Qualified Residential Mortgage rule with no down payment requirements.
Karen Shaw Petrou, managing partner of Federal Financial Analytics said, “Although the mortgage industry won big with the QRM equals QM proposal, it will have to fight hard to keep it. We anticipate the final rule will strike a middle path. This will be between the no-down-payment proposal and the 30 percent option, ending up at 10 percent.”
As a homeowner this will directly impact you so make your voice heard on the issue. In the meantime it is business as usual and home buyers that want to purchase a home with a small down payment should consider doing it now before the Qualified Residential Mortgage rule is passed.
